PCG PG&E Corporation

By Peg Brickley 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 22, 2019).

Shareholders that own more than 27% of PG&E Corp.'s stock and billions of dollars worth of its debt clashed with victims of the wildfires that sent California's largest utility into bankruptcy.

The issue is whether PG&E deserves to stay in charge of its multibillion-dollar chapter 11 case without worrying about rival restructuring proposals. Shareholders, including a trio that shook up the company's top management and board recently, said PG&E deserves more time to figure out how to pay damage claims from years of blazes linked to the utility's equipment.

But lawyers for wildfire claimants, in a filing last week in the U.S. Bankruptcy Court in San Francisco, called for limits on PG&E's ability to determine its future, given a history of safety lapses. California Gov. Gavin Newsom last week sided with the fire victims in a filing that criticized PG&E's leadership and recent changes to its board, and that said the company valued financial performance over safety.

A bankruptcy judge is set to decide at a hearing Wednesday in San Francisco whether to give PG&E exclusive control until Nov. 29, as the company has asked, or for a shorter period, as Mr. Newsom wants.

The dispute sheds light on the developing power dynamics of PG&E's bankruptcy case, set to play out over a period of years in the halls of government as well as in the bankruptcy court.

Big shareholders that are part of the group defending PG&E also own, in the aggregate, more than $2 billion in PG&E debt -- mostly bonds, but some loans, including pieces of $5.5 billion in bankruptcy financing.

Only five of the 22 investment funds that signed up to support the company as shareholders own stock exclusively. All the rest own debt instruments, and some have much more money tied up in debt holdings than in PG&E's stock.

In court papers Friday, the group said none of the investors that spoke up as shareholders are legally bound to look out for anyone's interests but their own, including the interests of other shareholders.

Abrams Capital Management LP, Knighthead Capital Management LLC and Redwood Capital Management LLC -- three funds that worked with PG&E to shake up its board and management -- each owns either bonds or insurance claims stemming from wildfire damage.

They are sharing bankruptcy law firm Jones Day and financial adviser PJT Partners with veteran distressed-debt investors like Centerbridge Partners LP and York Capital Management. Centerbridge and York each has more than twice as much money riding on PG&E's debt than in the company's stock.

It is common for big investment firms to buy debt of varied ranking within a company's capital structure in a major chapter 11 case. What isn't common is for big investment firms to risk hundreds of millions of dollars on stock, since shareholders almost always lose everything in bankruptcy.

PG&E's shares have traded at healthy levels during the bankruptcy, despite the massive damage claims and turmoil in the C-suite. That has shifted the power structure in PG&E's bankruptcy. While creditors typically vie with shareholders, in PG&E's case they are aligned in this legal battle against the people who lost homes, businesses and loved ones in wildfires linked to the company's equipment.

In court papers, the official fire victims committee said it has doubts that PG&E is a solvent company, as its debts appear to outweigh its assets. If that is the case, the company's shares would be reduced in value, or even wiped out.

An investor that owns both debt and stock in PG&E's bankruptcy has more clout than is typical, said Jonathan Lipson, professor at Temple University's Beasley School of Law.

Theoretically, creditors' interests are at odds with the interests of shareholders, he said. But debt investors that also can claim credentials as significant shareholders have amplified their power in PG&E's case.

"What may be more important to these sorts of sophisticated stakeholders than economic positions that might appear to conflict are the control rights," Mr. Lipson said.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

May 22, 2019 02:47 ET (06:47 GMT)

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